Who To Blame?


Last year Forbes magazine declared Stockton, California America’s most miserable city.  Since then Stockton has defaulted on some bonds and last Friday the New York Times reported that they would be a test case for defaulting on public pensions.  How did they get into this mess and who is most to blame?  A look at their July 1, 2011 – June 30, 2012 budget (all 412 pages) answers that question for me.

Sheet A-4 of that budget tome (page 14 of 412) notes that a “new senior management team” looked at the books and found:

“an unfortunate practice of inter-fund borrowings, deficit spending, over leveraging and drawing down cash from internal service funds, all of which have quietly put the City’s General Fund at greater risk.  From our examination, much of this has not been highlighted for City Council’s attention as a clear policy choice, but instead resulted from an accumulation of staff decisions at various levels of the City, and was buried in the myriad of financial details forwarded to the Council.”

Boiling it down, it appears that trust fund money was stolen to patch budget holes that would allow extremely generous employee benefits to continue but the Council is not to blame because they’re idiots who can’t be expected to pay attention to anything that’s not underscored, highlighted, and under 200 words.  Now that they can’t steal any more they’re about to declare bankruptcy and stiff bondholders and employees.

Raiding trust funds is not unusual as New Jersey and Union County do it routinely.  But who’s to blame?

(a) Politicians who get their positions by whoring out their services to anyone with $300 to get lawn signs.
(b) Bondholders and public employees who have promises of future payments in writing.
(c) People in government and consulting to government who should know better but keep quiet for some perceived personal, generally monetary, benefit.

I vote (c).  Being vain, dumb, or trusting is not yet a crime to me.  Treason is.

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41 responses to this post.

  1. Posted by Tough Love on March 18, 2012 at 6:04 pm

    The ROOT CAUSE of the financial mess we are in is the excessive pensions promised by self-dealing, vote-selling, contribution-soliciting politicians in back-door deals with Public Sector Unions in exchange for campaign contributions and election support.

    All the “funding” problems wouldn’t exist if it were not for the above FIRST.

    What I’m waiting for is a Federal Bankruptcy Court decision (Stockton, CA ?) that states that pensions for FUTURE service for CURRENT workers CAN be decreased or frozen…. hence overriding potential State-level Constitutional guarantees. That’s a VERY necessary 1-st step, as it enables Plans at all levels to stop digging the hole deeper, even if not addressing current unfunded liabilities for Past service accruals.

    Once this happens, the floodgates will open everywhere and perhaps Taxpayers will (eventually) get out from under this government-sanctioned (and orchestrated) thievery.

    Reply

  2. Posted by MJ on March 18, 2012 at 7:29 pm

    TL, the overly generous pension promises are a huge part of it but the other issues noted in the article are just as burdensome. The unfunded health care costs are way scarier to me than the pension liabilities. Perhaps all it will take is one city or town to default before they all fall like dominoes but I am not counting on any significant changes in NJ anytime soon. Honestly, “money stolen” out of funds to patch budget holes?? In the private sector, the perpetrator would be in jail unless one is a Wall Street big wig.

    Reply

    • Posted by Tough Love on March 18, 2012 at 7:52 pm

      I see their pensions as a more important issue, because lots of local Case Law (as well as State judges that participate in these Plans) makes even FUTURE service formula reductions, age increases, and COLA elimination problematic.

      Retiree HealthCare has WAY less protections and, with essentially zero funding, it will be whittled away systematically as budget pressures continue….. via Plan changes, bigger deductibles, higher Copays and/or coinsurance percentages, coverage limitations, taxpayers contribution caps, etc. Example, in Vallejo, CA’s bankruptcy, they kept it’s pensions in place (thanks to the Unions still controlling the Council), but took a hatchet to retiree healthcare.

      Although I am generally of the opinion that accrued benefits should be touched, SO MUCH of those “earned” accruals are inflated by the collusion between our politicians and the Unions, that my alter-ego say …screw-em …. they don’t deserve 50+% of what was “promised” (even for PAST service accruals), and why should Taxpayers pay for it ?

      Reply

  3. Posted by Anonymous on March 18, 2012 at 7:59 pm

    Tough Love is to blame. She works for an insurance company and everyone is fully aware that the health insurance benefits have a debt which far exceeds the pensions.
    Insurance companies are worse bloodsuckers than politicians. But I dont think I need to convince anyone of that. Only oil companies who also like to suck the blood out of people in the worst economy since the depression can compare to Insurance companies

    Reply

    • Posted by Tough Love on March 18, 2012 at 8:25 pm

      Back again …. working hard to divert attention (with all these irrelevant issues) from your excessive, unnecessary, and unfair (to Taxpayers) pensions and benefits ?

      And like I have told you before, I’m in the general field of Financial Services / Investment Banking, but not Insurance.

      Reply

  4. Posted by Al Moncrief on March 19, 2012 at 2:04 pm

    Hey, here’s some interesting news. The Florida Court of Appeals is sending their pension case directly to the Supreme Court. Also, (I think it was in Washington state) I read that they are considering skipping a pension contribution to fund education.

    Al

    Reply

  5. Posted by MJ on March 19, 2012 at 8:48 pm

    I wonder how long one can rob Peter to pay Paul before the shell game ends? One gimmick after the next but no real solutions. Maybe the new normal is to keep the printing press rolling into infinity and we can all call it a day.

    Reply

  6. Posted by SNJGuy on March 20, 2012 at 12:57 am

    TL,

    Why bother commenting if you are just going to be a broken record with the same old comment for every post made by Mr. Bury?

    In regards to your standard, tired comment that, “The ROOT CAUSE of the financial mess we are in is the excessive pensions…” please see Mr. Bury’s link in his post to a June 29, 2010 Star Ledger article about the pension system. On average, with 25 years of service, a teacher was getting $46,484 and state workers $39,592. Yeah, that real excessive! Outrageous! Give it a break.

    Oh, and do us another favor, don’t respond by stating that 80-90% of their pension is being paid by taxpayers because you know that is simply not true. That fact was proven to you previously. With the state skipping out on $17B in contributions from fiscal year 1999 through 2011, that state workers’ $39,592 pension is coming from his/her contributions, the overall fund’s investment returns over the years and is drawing off active member’s contributions with a very small percentage from taxpayers.

    What is the ROOT CAUSE of your bitterness, anger and animosity towards those you refer to in a condescending tone as “public servants”?

    Reply

    • Posted by Tough Love on March 20, 2012 at 1:20 am

      SNJGuy, Whether State Worker pensions are “excessive” has to be determined by measuring them against an appropriate comparative standard….

      Since Taxpayers ultimately pay for all but the typical 10-20% (including all Investment earnings) of total pension costs paid for by the employees, the standard of comparison as to whether the promised pensions are “excessive”, should be in comparison to what a similarly situated Private Sector worker gets as a pension.

      This is especially true becuase (per the US Gov’t BLS) for all but a very few high level professional occupations (e.g., doctors, lawyers) “cash pay” is very near equal in the Public and Private Sectors. Hence greater Public Sector pensions & benefits UNNECESSARILY results in greater “Total Compensation” (cash pay + pensions + benefits).

      Well, with VERY VERY few exceptions, you will find that the taxpayer paid-for share of Civil Servant pensions are ROUTINELY 2, 4 (6 for safety workers) times greater than the pensions of their Private Sector counterparts retiring with the SAME pay, with the SAME years of service, and with the SAME age at retirement.

      So YES….. by the APPROPRIATE standard, public sector pensions are indeed “excessive”.

      ********************************************

      If you accumulate all worker contributions with interest (at a rate consistent with investment returns during the period in which the contributions were made) to the worker’s retirement date, you will find that the accumulated sum is sufficient to buy 10-20% of the promised pension.

      Where do you think the 80-90% balance comes from … the tooth fairy.

      It comes from the Taxpayers’ contributions and the investment earnings thereon …. investment earnings that would have stayed in the taxpayers’ pockets (to benefit THEM) in the absence of these overly generous Plans and high contributions required of Taxpayers.

      *******************************************
      I strongly advocate for SUBSTANTIVE pension reform … to remove the Ball & Chain tied around Taxpayers necks by these pensions (and heavily subsidized retiree healthcare … which should be eliminated).

      ********************************************************

      Tell me … with no less in “cash pay” (per the US Gov’t BLS) what makes Civil Servants deserving of greater pensions, earlier retirement ages, and better benefits ?

      ********************************************************

      Your gravy train will be pulling into it’s last station in the not-to-distant future.

      Reply

    • Posted by Tough Love on March 20, 2012 at 2:25 am

      SJNGuy, I dug up the last time you posted this same issue … and my response. Everything I said then is absoluitlkey true. Your comment & my response follows:
      ******************************************************************************
      Posted by SNJGuy on March 8, 2012 at 2:40 am

      TL, What a weak response from you to Anonymous trying to justify how taxpayers, who have not been contributing to the state pension fund, have magically paid 80-90% of the retiree’s pension.

      You stated, “whether they paid it yesterday, today or tomorrow (it doesn’t matter).” You must be kidding me with that answer.

      Let’s be honest and look at say someone who:

      1. has been retired for 10 years now and collects a pension for another ten years. Very, very little of that retiree’s pension came from taxpayers. You’re smart, surely you know this to be true.

      2. a retiree who has been retired for 20 years now and collects for another 5 years. How much came from taxpayer’s payments and interest on the taxpayer’s contributions? Again, a tiny percentage; even lower than in the first example above.

      3. a person retires this year and collects for the next 20 years. IF the state and other employers make substantial payments from this day forward, then yes, the taxpayer share will absolutely increase compared to the first two examples. But there will still be a significant portion of this retiree’s pension that is monies from other non-retired members. That is happening now and would continue. The ponsi game to a degree as noted by Anonymous.

      The only way your statement (80-90% of the public worker pensions are paid by taxpayers) would be true is if the pension fund started all over at zero and retirees’ pensions could not drawn upon any monies from non retired members and the investment returns on the active members payments. If the retiree’s monthly checks could only contain their own contributions over their career and the interest it earned then at some point your statement becomes true BUT also only if the retiree collects for 20+ years or so.

      Reply

      Posted by Tough Love on March 8, 2012 at 3:43 am

      You miss the point, which is that the employees have been promised a VERY RICH benefit level for which they pay only 10-20% of the cost and the only “other” party who is called upon to pay the 80-90% balance are the Taxpayers.

      For years in NJ the Taxpayers have indeed been shorting their contribution … leading to good portion of the current huge unfunded liability. But this doesn’t let them off the hook unless lesser benefits are paid to the workers. Now let’s see if there might be a case for doing just that ….. paying lesser benefits

      My position is that the current Plan structure (the rich formulas, the very early full retirement ages, the inclusion of COLAs… now in dispute) has a “cost” so great that when added to cash pay and other benefits (such as retiree healthcare) that Public Sector “Total Compensation” (cash pay + pensions + benefits) is much greater than that in comparable Private Sector jobs….. and that excess is unnecessary to attract and retain a qualified workforce. The US Gov’t BLS studies show that cash pay in the Public and Private Sector is very close. That being the case, what justifies greater pensions and better benefits ?

      Well I suppose you could argue (as another poster did) that not everything in life is fair, and “so-what”, we negotiated a better deal. That argument might hold water if the “negotiation” was at arm’s length with each side’s negotiators (the Public Sector Unions and our elected representatives) appropriately representing their constituents’ interests.

      But we BOTH know it doesn’t work that way. BOTH sides work in concert for the workers’ benefit BECAUSE there is the very open trading of favorable votes on pay, pensions, and benefits in exchange for campaign contributions and election support.

      So why should Taxpayers honor such fraudulently approved contracts with “:total Compensation” far in excess of what is should and needs to be ?

      Reply

      Reply

  7. Posted by SNJGuy on March 21, 2012 at 12:20 am

    Tough Love,

    Again, totally unsupported statements from you…

    “Since Taxpayers ultimately pay for all but the typical 10-20% (including all Investment earnings) of total pension costs paid for by the employees…” …and “the only “other” party who is called upon to pay the 80-90% balance are the Taxpayers.”

    FALSE – Please tell me how much of the $70B or so in the pension fund right now and how much of every retiree’s pension during the past few decades and for years to come “has come from the Taxpayers’ contributions and the investment earnings thereon …. investment earnings that would have stayed in the taxpayers’ pockets (to benefit THEM)?” ANSWER: VERY, VERY LITTLE. Probably more like 8-9% instead of your 80-90%. You know this but refuse to accept the truth.

    The only tooth fairy in this story is the alledged taxpayer that has been funding public workers pensions. Other than Corsine’s two partial payments that were possible because of Federal Stimulus monies he received from Obama, the state and the other employers have essentiaslly paid nothing into the fund in the last twenty years and Christie has committed to severely underfunding it for the next eight years. That is one hell of a “Ball & Chain tied around Taxpayers necks by these pensions” as you state. Wish I had a ball and chain like that with my mortgage and college loans…just pay nothing for years and then make partial payments. What a joke.

    As I stated to you before, The only way your statement (80-90% of the public worker pensions are paid by taxpayers) would be true is if the pension fund started all over at zero and retirees’ pensions could not drawn upon any monies from non retired members and the investment returns on the active members payments. If the retiree’s monthly checks could only contain their own contributions over their career and the interest it earned then at some point your statement becomes true BUT also only if the retiree collects for 20+ years or so. Bottom line is this is theory; not reality.

    Boy, that state worker is really riding that gravy train with a $39,500 pension. I’m sure you can not sleep at night knowing this.So what happens if you get your wish?? That being, effective tomorrow, all pensions for public workers are reduced by 50%. Will you rejoice and be a happy person? I don’t want to burst your bubble but guess what? Your taxes (and mine) won’t go down a dime. Will they? You KNOW they will NOT.

    You may want to read before you paste old postings. It is abundently clear that you side stepped and failed to have answers in response to my March 8th posting but you think your response it shows your expertize so you post it again for all to see? LOL… me thinks the readers are losing respect for you.

    Reply

    • Posted by Tough Love on March 21, 2012 at 9:27 am

      Not that I believe you have the skill and knowledge to do so, but if you put together a spreadsheet, you’ll find that what I said is accurate … that the worker contributions (WITH investment earnings) accumulate to an amount at retirement to purchase 10-20% of their pensions.

      Under the current structure, Taxpayer contributions (again, with investment earnings thereon) are “responsible” for the 80-90% balance. And while (as I clearly stated in my March 8, 2012 at 3:43 am reply posted just above) Taxpayers have not been appropriately funding that 80-90% share, it remains their responsibility unless lesser benefits are paid to the workers.

      This takes us back to the “root cause” …. specifically , that your pensions are too generous, and CONSEQUENTLY very costly and difficult to fully fund. And the problem with that 10-90% or 20-80% split is that (again, unless your benefits are reduced, reducing the Taxpayers’ share) the required Taxpayer contributions when added to your “cash pay” and other benefits (e.g., retiree healthcare) results in your “total Compensation” (pay + pensions + benefits) FAR exceeding that of comparable Private Sector workers…. again, retiring with the SAME pay, with the SAME years of service, and with the SAME age at retirement. Paying you (this much greater) Total Compensation is both unnecessary and unfair to Taxpayers.

      Arguing (and stomping your feet) that it’s not true, won’t make it false.

      Reply

  8. Posted by SNJGuy on March 22, 2012 at 1:47 am

    “Not that I believe you have the skill and knowledge to do so…”

    Oh yes, no one is as smart as you Tough Love. That’s right, you are in “financial services…” Wow… You have put a spreadsheet together. We are so impressed! No one but YOU can figure any of this out. Duh…LOL

    I was probably doing spreadsheets while you were in diapers. Let’s dumb this down so that maybe even you will comprehend.

    I and others have told you before that we understand the SIMPLE concept that you think only you posess the skill and knowledge to do. The average public employee contributions and their investment earnings in a pension fund over the course of the worker’s career does not nearly cover the total pension benefit that worker may receive in retirement. As usual you inflate your numbers to feed your resentment and harden heart. I’ll give you that the total benefit is probably 75-80% more than worker’s contributions/returns on average.

    That is theory; let’s return to real life. Put your Chris Christi “Bully Tactics for Dummies” book down for a minute and try to stay with me here.

    Prudent or not, within social security, insurance coverage and many other financial systems, beneficiaries receive much more than what they contributed over their life time or period of coverage. Tough Love, where does the money come from to pay the beneficaries? From active workers contributing to social security and active policy holders paying premiums. Right? A legal PONSI scheme to a large degree. Well, in reality, but not in your spreadsheet, the same damm thing is happening with NJ’s public worker pension system. One reason it may crash.

    Regardless, this has been the case since the beginning of the pension system, continues today and will continue in the future with the only difference that Taxpayers have paid a small percentage towards those pensions, especially for the past two decades. Pick up your crayon and calculate all the taxpayer contributions to the pension fund for the past 25 years and those projected to be made over the next eight. Compare this to the total pension payments made and to be made to retirees. Does the taxpayer contributions even cover 10%?? Please share your calculations with those of us lacking your steller qualifications.

    Does the taxpayers responsibilty for the 75% share remain. Sure. In theory and on the books. Will taxpayers ACTUALLY PAY a 75% share? NO. Only could happen if the pension fund started all over at zero and retirees’ pensions could not drawn upon any monies from non retired members nor the investment returns on the active members payments. The retiree’s monthly checks could only contain their own contributions over their career and the interest it earned. Then at some point in the far, far future, taxpayers would ACTUALLY be funding a significant portion BUT also only if the retiree collects for 20+ years or so.

    Oh, and isn’t a pension fund that is 80% funded considered in “good shape’? It is highly unlikey that the pension fund will ever be 100% funded again and no one will bet on it getting to 80% any time soon. So, Ms. know-it-all, (I’ve seen others refer to you as a she),what if the fund continues along funded at a 65-80% funded level for the next 10 or 100 years. Asumming no outright failure this is the most likely scenerio. That is – TAXPAYERS and workers never contribute enough to bring the fund to a 100% funded level. What does that do to your 80-90% figure?? Please enlighten us with your anticipated brilliant response.

    What is the ROOT CAUSE of your bitterness, anger and animosity towards those you refer to in a condescending tone as “public servants”? Not that you ever really answer any question anyone asks you. You just copy and paste the same response you have been placing on every Mr. Bury post for a year now.

    Reply

    • Posted by Tough Love on March 22, 2012 at 3:14 am

      SNJGuy,

      I never said no one is as smart as I, but I’m quite sure I’m smarter and WAY more knowledgeable than you (just from reading your comments).

      (1) Quoting … “I’ll give you that the total benefit is probably 75-80% more than worker’s contributions/returns on average. ”

      No, like I said, the employees contributionsrepresent 10-20% of the total Plan costs (WITH inv. earnings), so the total Plan costs are 5-10 times or 500-1000% of the employees contributions.

      (3) Re you paragraph beginning with “Prudent or not” ….

      You’re really comparing YOUR pensions (and who pays for them) with Social Security, a VERY modest benefit (which declines as a % if income as income rises) with your over-the-top pensions …..seriously ? (You’re even dumber than I thought).

      (3) Re your paragraph starting with “Regardless” …

      I have agreed with you that Taxpayers have not been paying the 80-90% share (unfairly) allocated to them. It’s TOO BIG, and they don’t have the money (Surprise Surprise).

      What you’ve said is meaningless unless you (and all other riding this gravy train) agree to accept WAY less, otherwise, you are saying that taxpayers must make up all past omitted contributions (WITH lost investment incomes). Well earth-to-SNJGuy, it ain’t gonna happen. I suggest you think about the benefits cuts that will be coming.

      (4) Re your paragraph starting with Does the Taxpayer” …

      I hope and believe you are correct that Taxpayers won’t pay. Why should they when your rich benefits were the result of rigged “negotiations” with nobody at that “bargaining table” representing Taxpayers interests.

      (5) Re your paragraph starting with “Oh, and isn’t a pension” ….

      No, a pension fund should always target 100%, which means it should fluctuate from 120% in the best of times to 80% in the worst of times. Currently (in fairly lousy time), the NJ funding (on a Market value basis, and discounting Plan liabilities with appropriate interest rates .. such as those REQUIRED to value Private Sector Pension Plans), the NJ Plans are likly funded in the 40-50% range … horrible, by any standard. The balance of this paragraph clearly shows that you do not understand the underlying math … that makes failure at this point almost certain.

      And here’s the bad news … unless a miracle happen with the Plans’ investment returns, the NJ Plans have a life expectancy of just over 5 years.

      I suggest you plan accordingly.

      Reply

  9. Posted by Anonymous on March 22, 2012 at 9:58 am

    Anyone with any sense will ignore Tough Love. She craves the attention and once she is deprived of it,she will slowly fade away. She is in financial services, whatever that is supposed to mean.Maybe She is an ATM repairman.

    Reply

    • Posted by Tough Love on March 22, 2012 at 11:01 am

      I’ve been in this business a LONG tome, and I understand the numbers. Denial, delay, distortion and deceit won’t help fund your pension promises. They are simply too generous. W/o reform, which must include cut in promised pension for CURRENT workers many many Plans (incl. NJ’s) will simply fail with terrible consequence for the workers they were supposed to protect.

      Gaining some real knowledge on this subject (instead of just spouting the Union garbage) and getting your head out of your A** would also help.

      Reply

    • Posted by Tough Love on March 22, 2012 at 11:43 am

      Interestingly, just after I wrote my response to you above, I read an interesting news story which mentioned NJ’s pensions. I suggest you read it (and let us know what you think). You can find it here:

      http://www.620wtmj.com/blogs/charliesykes/143617196.html

      Here’s a brief quote from that news story:

      “As he wages his own quixotic war against bloated public pensions, New Jersey Gov. Chris Christie relates the story of one 49-year-old retiree who had paid a total of $124,000 toward his retirement pension and health benefits. “What will we pay him?” asked Christie. “Three point three million dollars in pension payments and health benefits.” A retired teacher who contributed $62,000, says Christie, will get $1.4 million in pension benefits plus $215,000 in health care benefit premiums over her lifetime.
      “(There are) two classes of people in New Jersey: Public employees who receive rich benefits and those who pay for them,” said Christie.”

      If you calculate (for the two examples in Gov. Christie’s quote) the percentage of employee contributions to expected worker payout, it’s even LOWER than the 10-20% I have been stating.

      While Gov Christie was trying to emphasize a point, from a proper #s standpoint his figures are misleading. A PROPER financial comparison reflects the “time value of money” by discounting or accumulating all cash flows to a common date. That’s how I arrived at the 10-20%, by using the retirement date as the common date of comparison, accumulating employee contributions (with earnings) to that date, and comparing them the discounted value of the expected future pension payment to that date. *

      ***************************************************************************************************
      *While for the latter, a technically correct calculation discounts the expected future pension payments through age 110 with decrements for both interest and survivorship (mortality), a very close estimate can be obtained by discounting a guaranteed payment stream (for a period equal to life expectancy) using interest as the only assumption in discounting.

      Reply

    • Posted by Tough Love on March 22, 2012 at 12:16 pm

      Interesting day … John Bury (the owner of this Blog, and a professional Pension Actuary) just opined that NJ is broke … the 2 biggest reasons being Public Worker Pensions and Retiree Healthcare promises. Its his new Post for today, and you can find it here:

      http://burypensions.wordpress.com/2012/03/22/taxes-and-debt-in-new-jersey-preview/

      Are his credentials good enough for you ? You can agree to take less, or perhaps end up with nothing but a return of your contributions (if you’re lucky).

      Keep buying the garbage from you Union. My young son even know that “denial” is not a solution …. it’s a river in Africa.

      Reply

    • Posted by Tough Love on March 22, 2012 at 2:55 pm

      Another article today … avery accurate summary of the issues and problems surrounding NJ’s pension Plans. I suggest you read it with an open mind, as this will contribute the the education you certainly need on the subject:

      http://unionwatch.org/what-public-employee-unions-are-doing-to-america/

      Reply

  10. Posted by SNJGuy on March 23, 2012 at 3:04 am

    Anonymous

    Your right. I was not showing any sense. I will ignore Tough Love from now on. As much as that will pain me! LOL!

    I come to this blog because I respect Mr. Bury’s knowledge and the information he presents. He does it in an intelligent manner, without tring to prove he is smarter than anyone. He presents FACTS, doesn’t judge commenters or put them down. He is not bitter nor condensending. He has his opinions on what is fair or legal and provides proofs to support his stance. He does not come off as a flaming, ranting anti public worker blogger. This is HIS blog after all although Tough Love insists on dominating all comments and probably is turning people off from it. A real shame. I have too much respect for Mr. Bury to gum it up by giving attention to someone who does not deserve it.

    But, boy, did I ever hit a a Tough Love nerve. Eh? Along with her not specifically addressing my comments (as usual) she showed what a bitter low class person she is with her insulting responses of “but I’m quite sure I’m smarter and WAY more knowledgeable than you”, ” You’re even dumber than I thought”, “What you’ve said is meaningless”, “Gaining some real knowledge on this subject (instead of just spouting the Union garbage) and getting your head out of your A** would also help”, ” Keep buying the garbage from you Union”, “as this will contribute the the education you certainly need on the subject.” Well, I guess I did goat her into it to a degree…lol.

    Wow… funny how I’ve told her before that I am NOT a public employee and I am one of the most anti-union people you would ever meet. Sure makes the above insults quite funny… ok stupid actually and a huge waste of time. But damm, those facts just get in the way of her agenda and need to TRY to degrade people.

    Reply

    • Posted by Tough Love on March 23, 2012 at 3:42 pm

      You keep saying “I’ .. (I will, I am, etc.).

      Regardless of your denials, I believe that you are an active, terminated, or retired Civil Servant (or a family member is) and that self-interest (and yes, greed) colors your comments.

      If Mr. Bury feels my comment don’t add effectively to the discussion, or distract, I’m sure he can bar me from commenting. Both Mr. Bury and I recognize the huge problem, but granted, he focuses more on funding issues and the improper role actuaries (and other special interests) have played in allowing this, why I believe we need to step back and focus on the richness of the Plans approved (and whether collusion led to excessive richness), as richness of Plan design is a big determinant of funding.

      I don’t object to your commenting, but will debate your comments from MY perspective, that of a Taxpayers who feels terribly abused by the unnecessary and unfair compensation granted Civil Servants via excessive pensions and benefits.

      **************************************************************************************
      By the way … I hope you aren’t a Police Officer as you clearly have an anger management problem and should not have access to weapons.

      Reply

  11. Posted by muni-man on March 23, 2012 at 9:50 am

    Here you go. Consider these spreadsheet results using time value of money calcs. I used a realistic 5% return/yr. instead of the euphoric 8% the plans use and I gave both employees the new contribution rates which just went into effect and which are MUCH higher than they’ve been paying into the plans over their careers previously. It shows pretty clearly how costly to the taxpayer these plans really are and why they’re going to evaporate in the future.

    POLICE CHIEF TEACHER
    $155,000 Final Salary $105,000
    30 (360 mos.) Years of Service 33 (396 mos.)
    70% Pension as % of Final Salary 60%
    $108,500 Pension $63,000
    $77,500 Avg. Salary Over Career $52,500
    (50% of final salary)

    (1) PV OF ANNUITY (NO COLA)
    $9,042 Annuity/Mo. $5,250
    $108,500 Annuity/Yr. $63,000
    55 Age at Retirement 58
    82 Age at Death 82
    27 Years Collecting Pension 24
    324 Months collecting pension 288
    5% Investment return/yr. 5%
    0.004167% Investment return/mo. 0.004167%
    $1,588,769 PV [1] of Lump Sum $869,314
    Needed to Fund Pension

    (2) PV OF GROWING ANNUITY (COLA)
    $9,042 Annuity/Mo. $5,250
    $108,500 Annuity/Yr. $63,000
    55 Age at Retirement 58
    82 Age at Death 82
    27 Years Collecting Pension 24
    324 Months collecting pension 288
    5% Investment return/yr. 5%
    0.004167% Investment return/mo. 0.004167%
    2% Annual COLA 2%
    $1,963,175 PV [2] of Lump Sum $1,052,678
    Needed to Fund Pension

    (3) FV OF EMPLOYEE’S PENSION CONTRIBUTIONS
    10% Career Employee Contributions 7%
    Rate (% of Salary)
    (very generous assumption)
    $645.83/mo. Avg. Career Salary $306.25/mo.
    Employee Contributions/Mo.
    360 Years of Service in Months 396
    $232,500 Total Employee Career Contributions $121,275
    5% Investment return/yr. 5%
    0.004167% Investment return/mo. 0.004167%
    $537,500 FV [3] of Total Employee $329,896
    Contributions (with earnings)

    (4) TAXPAYER FUNDED PORTION OF PENSION (NO COLA)
    $1,051,269 PV [1] minus FV [3] $539,418
    $1,051,269/$232,500 = 4.52x $539,418/$121,275 = 4.15x
    ^^^Taxpayer-to-Employee Funding Multiple^^^
    22.12% (1/4.52x) 24.09% (1/4.15x)
    ^^^Actual Out-of-Pocket % Funding of Pension By Employee^^^

    (5) TAXPAYER FUNDED PORTION OF PENSION (2% COLA)
    $1,425,675 PV [2] minus FV [3] $722,782
    $1,425,675/$232,500 = 6.13x $722,782/$121,275 = 5.56x
    ^^^Taxpayer-to-Employee Funding Multiple^^^
    16.31% (1/6.13x) 17.98% (1/5.56x)
    ^^^Actual Out-of-Pocket % Funding of Pension By Employee^^^

    Reply

  12. Posted by Anonymous on March 23, 2012 at 10:07 pm

    Tough,

    SNJ tells you he is not a public employee and you respond by saying he is because he keeps saying “I” (I will, I am)? I just read through all the comments (admittedly quickly)on here from him and don’t see even one time where those two words were used at all by him. What are you talking about?
    If using the word/letter “I” makes you a civil servant, do you know that you used “I” six times in your last post…hmm… maybe you are a fired Civil Servant or applied but were not hired? Despite your denial….I am going to believe that.

    Reply

    • Posted by Tough Love on March 23, 2012 at 10:32 pm

      You incorrectly came to the conclusion that I believe SNJ (or a family member) is a Civil Servant BECAUSE I said that he kept saying I will, I am, etc. The was no such connection.

      My statement that he kept saying I will, I am, etc. was there to point out how important he thinks HIS opinion is, while he complains that I am strongly opinionated. That statement had nothing to do with my belief that he is (or a family member) a Civil Servant. The totality of his comments leads me to that conclusion.

      In SNJ’s comment time-stamped March 23, 2012 at 3:04 am, he uses the words “I was”, “I will”, “I come”, “I have”, “I guess”, “I did”, and “I am”. You should read less quickly.
      *************************************************************************
      P.S. I respect you right to comment anonymously (as I do), but it would be preferable to use a consistent handle other than “Anonymous”. “Anonymous” is a default handle, and I have no idea if you are the same “Anonymous” as the previous “Anonymous”.

      Reply

  13. Posted by SNJGuy on March 24, 2012 at 8:05 pm

    Muni-Man,

    Thanks for the analysis. It helps to have some numbers to review. My back of the envelope calculation I’ve expressed before came up with 25% funding by an employee of their pension but I’m leaning towards that this percentage is a bit higher. I want to focus on the teacher in your example since that more closely resembles the majority of the public workers in NJ (state, county, municipal). No question that police and fireman pensions are more generous. A few questions for you:

    1. Where did you get some of your numbers? Did you pull any of these from some NJ pension system published averages?
    $105,000 salary
    60% pension of final salary
    age of retirement -58
    years collecting pension – 24
    Investment Return – 5% (just conservative number lower than 8?)
    COLA % – 2%

    Of course we also have the case of an employee retired today with 33 years of service in the past versus an employee starting today or with 10-15 years of service where some of their pension calculations are going to be different when they retire.

    Reply

    • Posted by muni-man on March 25, 2012 at 12:06 am

      I just used a salary overview from my town and 8 others fairly close to my own town in Ocean & Monmouth counties from publicly available guv. salary info. I made sure I was including teachers, not the very high-priced school superintendent crowd that would skew salaries much higher. For teachers, I just assumed a 1.8%/yr accrual rate starting at age 25 with retirement at 58. That was fairly representative. I upped my former croakable age from 80 to 82. But I did give teachers and public safety types the B-I-G advantage of assuming they contributed 7% and 10% respectively into their plans over their entire careers to reflect the new rates, when in fact it’s a certainty current actives contributed FAR less than that. Whether those higher employee contribution rates will continue is a crap-shoot since the plans are likely to ultimately fail. But even assuming those higher contribution rates, it shows just how costly these plans are and that’s the fundamental reason why they’ve been underfunded – the taxes required to fund these beasts over the years would have been politically unacceptable to taxpayers and that’s why pols haven’t funded them because they didn’t want the true costs made known to and imposed on the public. The spreadsheet I use simply requires keying in some or all of 8 variables to run any scenario you want and takes seconds to update. If the old, lesser 5% and 7.5% contribution rates for teachers and public safety types were used, the actual employee pension funding percentages under my previous examples would drop for no-COLA and 2% COLA scenarios into the 15%-12% range, from the 24%-16% range with the higher contribution rates I used. Who’s zoomin’ who?? – these public pension plan and union dudes are laying down a massive smoke screen any which way they can, which is why they are adamantly clinging to a 8% ROI in their calcs. They won’t get anything like it long-term. Just wait until the next serious, prolonged market dump. That will put many of these plans in the ground for good. The publics can screw around with politics and legal appeal crap all they want thinking that’s their salvation but they’ll be pissin’ up a rope – neither they, nor any court, will be able to conjure up a publicly-acceptable solution that will solve the brutal, inexorable financial pension math and that’s the thing that’s going to ultimately kill their plans, unless they agree to very large benefit reductions. There’s no doubt about it.

      Reply

      • Posted by Tough Love on March 25, 2012 at 1:04 am

        Quoting …”But even assuming those higher contribution rates, it shows just how costly these plans are and that’s the fundamental reason why they’ve been underfunded – the taxes required to fund these beasts over the years would have been politically unacceptable to taxpayers and that’s why pols haven’t funded them because they didn’t want the true costs made known to and imposed on the public.”

        That’s exactly what I have been saying for the past few YEARS. The “funding” problem (is a really a “high cost” problem) BECAUSE the Plan designs are way too generous ….. and (the pension accrual rate) needs to be reduced for FUTURE accruals of CURRENT, not just new employees. Employee contribution increases rarely get you more than 10-20% of the cost-savings needed.

        Nice work !

        Reply

  14. Posted by SNJGuy on March 25, 2012 at 3:11 pm

    Thanks for response Mini-man. A few things to consider…

    1, Average return for the pension system from 1998 to 2011 was just over 7%.

    2. Salary of $105,000 seems high on a statewide basis for teachers and especially if translated to all public employees, even at 33 years of service

    3. Why use age of death of 82 versus 78 or 80?

    4, I’ve looked but have not seen stats on the average number of years a public employee retiree/beneficiary collects a pension. Surely there is some percentage that die a year, 5, 10, 15 or 20 years after retiring and I would imagine it is higher than those living beyond age 82. The employee selecting the maximum pension has no beneficary. Did 24 years come from somewhere or did you just assumed age 58-82?

    5. If a teacher or other public employee worked the last 33 years then they would be eligible for a maximum pension of $63,000/yr at a final salary of $105,000 and I guess the state must be prepared to pay that amount BUT Less than 1/2 of all public employees receive the maximum. The other half choose options that result in $54,000 to $60,000/yr payouts of which those amounts may be significantly reduced for the beneficiary if the retiree dies.

    6. Pension calculations have been changed quite a bit for employees hired since 2007 and even more for any hired after 2010 with retirement age without a penalty going from 55 to 60 to 62 and the formula revised (years/55 X final avg salary to years/60) which decreases the pension by 9%.

    Just curious if the therorical average funding ratio of employee to employer when including all public workers might be closer to 30-70 than than 25-75 or 15-85.

    I’ll save my final thought for later.

    Reply

  15. Posted by SNJGuy on March 26, 2012 at 10:45 pm

    For sake of discussion ,let’s agree over the past 24 years, in the example we’ve been using, public workers were suppose to contribute ON AVERAGE a total of 25% towards their pensions and their employers the other 75%. This was ON PAPER and in theory.

    The public workers MADE THEIR PAYMENTS from each and every pay check… BUT…

    The employers FAILED to make anywhere near the 75% share amount they agreed to make. I can give specific numbers for each governor but essentially the payments were miniscule..overall maybe in the low single digits instead. The only “significant payments were by Corsine in 2007 and 2008 who used Obama stimulus Fed money…not state taxpayer money. The state (not county and municipal?) skipped approx $16.6 B in payments since 1998. IF the pension fund was now at say $90-95B, (likely if employers made their payments) would we be even having these discussions?? Nope.

    Largely because of the pension payment holiday by the public worker’s employers, the pension fund is 65-70% funded as per the official state Treasury analysis (Mr. Bury has indicated he believes it to be far lower).

    Us taxpayers never like to pay any taxes! Who does. But without any doubt whatsoever, us taxpayers have not been saddled with paying taxes, over the past 24 years, to fund our 75% share. Taxpayers have contributed almost nothing over the past 24 years towards public worker pensions.

    Taxpayers will not be funding anywhere near a 75% share over the next seven years, at a minimum, either. IF Christie ever makes this fiscal year’s payment, it will be only 14% of what it is suppose to be. Even if the employers make 100% contributions seven years from now, there will be a three decade shortage that will never be made up. And if the pension fund investment returns over the next few years are good (6-10% each year with no big down year) and the pension fund just continues to limp along at a 60% – 70% funded level, taxpayers will never ACTUALLY pay a 75% share of the pensions.

    The state is suppose to contribute ~ $470M to the pension fund this fiscal year. Taxes were not raised to pay for it. A ~ 1.1B payment is due next fiscal year and no taxes are being proposed by the state to pay for it – instead the Governor is proposing to lower taxes and actually spend more money.

    Reply

  16. Posted by muni-man on March 27, 2012 at 4:25 pm

    For the sake of argument let’s get real – publics have NOT been contributing anything close to 25% of the actual cost of their pensions over the last 24, 44 or 64 years. The hypothetical 75% taxpayer-25% employee funding split you mention is pure fiction and not close to reality. In fact, it’s a virtual impossibility even with the increased rates under the current plan design. For many years until the mid-’80s, public safety was contributing zipola to their pensions. I don’t know about the rest of the public crowd but it was likely a hefty % lower than today’s contribution rates. So, let’s try a REAL effective average contribution range over the last 20-24 years of maybe 3.5% for teachers and 4% of pay for public safety which still might be too high. You questioned a death age of 82, so I used both 82 and 78 giving teachers pensionable years at age 58 of 24 and 20 years, and police pensionable years at age 55 of 27 and 23 years respectively. I also threw in calcs using both 5% and 7% ROI’s over those service and pensionable years as well. Using these lower contribution rates, then the actual employee pension funding % in my two earlier examples drop markedly and would be:

    TEACHER (3.5% average contribution over 33 yr. career and 5% ROI)
    Pension Years 24 & UNCOLA – 8.5% actual funding of pension; POLICE (4%, 30 yrs.) – 6.8%
    Pension Years 24 & 2% COLA – 6.8% actual funding of pension; POLICE (4%, 30 yrs.) – 5.3%
    Pension Years 20 & UNCOLA – 9.6% actual funding of pension; POLICE (4%, 30 yrs.) – 7.5%
    Pension Years 20 & 2% COLA – 7.9% actual funding of pension; POLICE (4%, 30 yrs.) – 6.0%

    TEACHER (3.5% average contribution over 33 yr. career and 7% ROI)
    Pension Years 24 & UNCOLA – 12.5% actual funding of pension; POLICE (4%, 30 yrs.) – 9.4%
    Pension Years 24 & 2% COLA – 9.7% actual funding of pension; POLICE (4%, 30 yrs.) – 7.4%
    Pension Years 20 & UNCOLA – 14.1% actual funding of pension; POLICE (4%, 30 yrs.) – 10.3%
    Pension Years 20 & 2% COLA – 11.2% actual funding of pension; POLICE (4%, 30 yrs.) – 8.2%

    TEACHER (4.5% average contribution over 33 yr. career and 7% ROI) (Pension Years 20 & No COLA – 21.4% actual funding of pension (my best est. taxpayer case scenario, highly unlikely though)

    POLICE (6.0% average contribution over 30 yr. Career and 7% ROI) (Pension Years 23 & No COLA) – 18.6% actual funding of pension (my best est. taxpayer case scenario, again highly unlikely)

    Raising/lowering final salaries would NOT change the % employee funding under a given scenario, although it would obviously raise/lower total pension payouts. Contribution rates, pensionable years, final pension salary %, ROI’s, and COLA’s vs. UNCOLA’s drive the funding calcs.

    The above percentages show how totally absurd the employee payouts are vs. the employee contributions to these plans. If these plans are not completely redesigned with vastly reduced benefit levels (increased age/service, lower accrual levels, etc.) they will evaporate. Even if all NJ funding had been made in the past, there is no way funding can keep up with the ever-increasing payouts these plans provide. In short, there is no ‘steady state’ financial equilibrium for them – it’s simply a requirement for ever-more funding year after year after year with no end ever in sight. Well, that kind of situation never could last and now taxpayer economics is finally starting to take over nationwide and seriously squeeze the corrupt pols who promised these half-assed benefits. In that battle, economics will prevail after a lot of prolonged, scummy, legal turmoil. There are gonna be some real plan BIGGIES that are gonna bite the dust in the next couple of years and they’re not going to have much in the way of any implementable legal recourse to fall back on, much as they’d like to believe otherwise. When the first big domino topples, the floodgates will open wide. Stay tuned, it’s coming to a pension theatre near you!

    Reply

    • Posted by Tough Love on March 27, 2012 at 7:40 pm

      Like I’ve been saying for years, Public Sector workers rarely pay for more than 10-20% of the total cost of their pension, with that 10-20% INCLUDING all the investment income earned on their contributions throughout their careers.

      The balance is paid for by taxpayer contributions (and the investment earnings thereon).

      Reply

      • Posted by muni-man on March 27, 2012 at 10:15 pm

        You’re right – there’s absolutely no doubt about the fact that publics pay squat as a % of their true pension costs. Pols/unions have been blowin’ smoke up taxpayers’ asses for years now with this gig. I simply won’t support this extortion, which is why I’m muni-man. I avoid virtually all Fed/state income taxes, and incur no payroll taxes since I’m a private investor and I make my real heavy-duty returns in my IRA. But I can’t avoid paying 100%+ more than is warranted for local gooberment services that are essentially mediocre at best and occasionally downright abysmal, and that really pisses me off. So I do what I can do – I vote against the school budget every year, which is the biggest expense shithouse by far at the local level.

        Reply

        • Posted by Tough Love on March 27, 2012 at 10:44 pm

          I’ve always found the voting down of the school budgets meaningless. With a $25 Million budget, the town Council might cut $100K or $200K. They’re ALL in cahoots and any cuts by the Councils are an insult to those who vote down the budgets.

          For REAL reform, the PENSIONS need to be hard frozen (and replaced with a DC Plan with a modest taxpayer match) or have the accrual rate halved for FUTURE service DB pension Plan accruals.

          And let’s not forget the OTHER big boggy-man in the room … retiree healthcare.

          NOBODY in the Private sector get this any longer. Civil Servants are NOT
          “special”, and neither should THEY, at least not at OUR expense.

          Reply

          • Posted by muni-man on March 27, 2012 at 11:23 pm

            My Republican-leaning town has had some success in corraling the school demagogues. Increases over the last 5 years have averaged less than 1%/yr., but it’s not enough. It has to decrease, and the only way to effectively do that is to substantially increase class sizes and eliminate a lot of teachers. This scam
            about lower student-to-teacher ratios producing better results is pure union crap to employ a lot more ineffective teachers at taxpayer expense. The calibre of students graduating today is pathetic.

          • Posted by Tough Love on March 28, 2012 at 12:17 am

            My understanding is that the ratio of administrators to teachers has increased drastically over the past 2 decades.

            Time to reassign admins to class instruction for fire them.

  17. Posted by SNJGuy on March 28, 2012 at 12:29 am

    Muni-man,

    Pension contributions rates for teachers, state and other public employees (county/municipal) were generally 5% over your 33 year period. Not absolutely sure but I think that rate goes way way back (before 1980’s). It was reduced for a couple years (2-4) to 4.5% in late 1990’s and then to 3% for two years (2002-2003). It was then raised back to 5%, went to 5.5% about two years ago and now is 6.5%.

    So, actually, the scenerio you described above that is probably the most accurate overall was:

    “TEACHER (4.5% average contribution over 33 yr. career and 7% ROI) (Pension Years 20 & No COLA – 21.4% actual funding of pension (my best est. taxpayer case scenario, highly unlikely though)”

    Also, I mentioned the average pension fund investment return was just over 7% from 1998 to 2011. That only covers about the last 14 years. If you are going to use a 33 year career then you are looking back to about 1979. I am quite sure, the returns in the 1980’s were higher than that by a few percentage points and in the 1990’s the returns were far higher than 7%. No severe market corrections in either decade like we have experienced multiple times since 2001. Actually during this time period, the pension fund was blowing away the 8% estimate! These excessive returns were, for the past 33 years, and are still now being used to fund retiree pensions along with a draw down of active member contributions. Very little taxpayer contributions paid anyone’s pension because as we all know, they (employer payments) simply were not made or a fraction paid. Therefore, they could not fund any significant percentage of any employee’s pension; no less than 75 or 90%.

    A 25-30% contribution by employees, strong investment returns over 10%, probably a 10-15% contribution by employers leaves us where we are today….60% funded…

    Reply

    • Posted by Tough Love on March 28, 2012 at 1:56 am

      Most teachers are female (who have longer life expectancies), Age 82 is lightly on the low side for retired teachers with good health coverage. … so the 24 year period is a MUCH more appropriate assumption (for the payouts period) than a 20-year period.

      Also looks like you are writing-off the COLA challenge…. still unknown.

      Reply

      • Posted by muni-man on March 28, 2012 at 2:17 am

        That’s why I went with the 82 year death age – the majority of teachers are female and that’s their bullet. Males clock in around 78.

        I don’t believe there is any real COLA challenge going forward. The NJ Appellate Div. of the Superior Court shot them down in 2010 by solidly affirming the long-standing SPINA decision as settled law, and refused to hear their latest squeal which is why they went to Federal District Court. The Feds claimed no jurisdiction, so where do they go from that outcome. You get one bite at the apple. They had their bite at the state and Fed levels – they lost both. Game over. Not that they won’t try some further BS, but I think it will be futile.

        Reply

  18. Posted by SNJGuy on April 1, 2012 at 2:11 pm

    Muni-man,

    Remember that while you used an axample of a teacher and cop, as I explained a few times, I was trying to equate your calculations to public employees overall and statewide that are in the pension system. There are far more employees in the system that are not teachers and overall probably less than 50% are women too.

    Therefore, the 20 year payout (retirement period) is the more accurate timeframe than 24 years.

    Also, going forward it certainly may be different but the pension fund investment returns over the past 33 years were far higher than even the revised figure of 7% (you used based on the funds returns I provided over the past 14 years).

    Reply

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